Hidden dangers of filing a home insurance claim

By Donna Fuscaldo Posted : 01/11/2011

Home insurance claimHomeowners insurance is supposed to protect you in the event of a disaster. But if you file too many claims, your premium could go up. Even worse, you may be dropped altogether.

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In some cases, just inquiring about potential payment for damage could go down on your record – and affect your rates.

"Typically, if you have two claims in five years, you are going to get dropped," says J.D. Howard, founder of The Insurance Consumer Advocate Network in Springfield, Mo.

"Insurance companies are trying to identify consumers that regard their home insurance policy as a maintenance policy and keep coming back."

Insurance can protect you in the event of a natural disaster, fire, theft or personal injury. But generally, you should use the policy for major claims, not small claims. 

"Having a history of small $250 to $500 type claims could put you in a higher-risk category" when the policy is being renewed, says Mary Bonelli, a spokeswoman for the Ohio Insurance Institute.

C.L.U.E. database tips off insurance companies

Auto and home insurance companies often use the C.L.U.E. database, operated by ChoicePoint, when underwriting homeowners policies. (C.L.U.E. stands for "Comprehensive Loss Underwriting Exchange.")

This database maintains a record of property damage claims for the past seven years and in some cases, even includes your inquiries about potential claims. It includes the amount paid out by the insurance company and whether it was related to a catastrophe.

The more claims you have in this database, the worse you appear in the eyes of the insurance company. That's especially true if your claims all occurred within a three- to five-year period.

"You should not file every single claim," Mark Carrasquillo, an account executive at New York-based insurance brokerage firm EG Bowman.

Carrasquillo advises clients not to call the insurance company directly to file or inquire about a claim if it's only a few hundred dollars over their deductible.

For example, if a pipe bursts and causes damages of $700 – but your deductible is $500 – Carrasquillo would urge you to pay the full $700 out-of-pocket rather than making an insurance claim that would be noted in the C.L.U.E. database.

The insurance company won't raise your premium because of a single claim, but additional claims over the next three years could cause you to be dropped at renewal time, Carrasquillo says.

Sometimes savvy homebuyers are also interested in your C.L.U.E. reports. So if you are planning to sell your house, you've got another reason to think twice before filing small claims.

"A homebuyer looking at the home may want a copy of the C.L.U.E. report to see what kind of losses it had in the last three to five years," Bonelli says.

Howard suggests the following rule of thumb when deciding whether to make an insurance claim: Calculate how much you'll be getting from your insurance policy compared to the next three years of premiums. If the amount exceeds three years' worth of premiums, Howard says to file the claim.

"If you're standing in your kitchen looking at your neighbor's oak tree through your roof, then file the claim," he says.

Be careful with insurance inquiries

In addition, simple inquiries about what your policy covers – such as asking whether your policy would cover a flooded bathroom or broken windows from a wind storm – could end up in the C.LU.E database.

Bonelli of the Ohio Insurance Institute says a survey of 10 insurance companies in Ohio found that most companies do not report customer inquiries to the C.L.U.E. database. Still, many insurers leave the decision to the discretion of the agent, Bonelli says.

When calling your agent about a potential claim, "you want them to know you are not filing a claim, that you are doing this for informational purposes only," Bonelli says.

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